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For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you try your hand at stock picking, you risk returning less than the market. Unfortunately, that's been the case for longer term NexLiving Communities Inc. (CVE:NXLV) shareholders, since the share price is down 46% in the last three years, falling well short of the market return of around 29%. More recently, the share price has dropped a further 8.1% in a month.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
See our latest analysis for NexLiving Communities
Because NexLiving Communities made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally hope to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.
In the last three years, NexLiving Communities saw its revenue grow by 40% per year, compound. That's well above most other pre-profit companies. While its revenue increased, the share price dropped at a rate of 14% per year. That seems like an unlucky result for holders. It seems likely that actual growth fell short of shareholders' expectations. Before considering a purchase, investors should consider how quickly expenses are growing, relative to revenue.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Take a more thorough look at NexLiving Communities' financial health with this free report on its balance sheet.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of NexLiving Communities, it has a TSR of -44% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
We're pleased to report that NexLiving Communities shareholders have received a total shareholder return of 41% over one year. And that does include the dividend. Notably the five-year annualised TSR loss of 7% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for NexLiving Communities (of which 2 are concerning!) you should know about.